Nokia drops targets and shares slump to 13-year low

HELSINKI Tue May 31, 2011 1:02pm EDT

A man talks on his mobile phone as he walks past an advertisment for the new Nokia N8 on Oxford Street in London, September 30, 2010. REUTERS/Luke MacGregor

A man talks on his mobile phone as he walks past an advertisment for the new Nokia N8 on Oxford Street in London, September 30, 2010.

Credit: Reuters/Luke MacGregor

HELSINKI (Reuters) - Mobile phone maker Nokia Oyj abandoned hope of meeting key targets just weeks after setting them, raising questions over whether its new boss can deliver on the turnaround he promised in February.

Its shares tumbled 18 percent to their lowest in 13 years, wiping some 3.8 billion euros ($5.5 billion) off its market value as investors worried the company, once the leading force in its industry, was losing so much market share it may never regain its footing.

Nokia has been losing ground in the smartphone market to Apple Inc's iPhone and Google Inc's Android devices, and at the lower end, to more nimble Asian rivals.

The company is switching to Microsoft Corp's software from its own Symbian platform as part of an overhaul of its phone business set out three months ago by new Chief Executive Stephen Elop.

But it continues to suffer from mounting competition and warned on Tuesday it expects net sales from its devices and services business in the second quarter to be "substantially below" its previous forecast, set in April, of between 6.1 billion euros ($8.7 billion) and 6.6 billion.

Elop, brought in last year to help revive Finland's flagship technology company, blamed both weak sales and price cuts, noting competition was particularly tough in Europe.

"Android is gaining strength. Apple is Apple, of course," he told analysts on a conference call. He also said management issues had also hurt business in China, where Nokia faces challenges from the likes of ZTE Corp.

"Given the unexpected change in our outlook for the second quarter, Nokia believes it is no longer appropriate to provide annual targets for 2011," the company said, though it would still provide quarterly updates.

Nokia forecast its non-IFRS operating margin for devices and services to be around break-even in the second quarter, rather than previously expected range of 6 percent to 9 percent.

STARTING TO LOOK DANGEROUS

The new outlook implies a loss is likely for third quarter, analysts said. They also said the warning showed Nokia's market position worsening much faster than expected, with lower-priced Asian rivals grabbing a bigger chunk of markets such as China.

"What does strike us as quite surprising is the level to which the markets have dropped, we're talking about break even now, which is quite a slide," said Lee Simpson, an analyst at Jefferies & Co.

"I think this level of shareholder destruction is now starting to look dangerous. What can these guys do to reverse this?"

Nokia shares closed at 4.75 euros, having briefly fallen as low as 4.716 euros, their lowest in more than 13 years and compared with a peak around 65 euros set in 2000.

"Given the internal turmoil that will be generated by this news, it is increasingly difficult to see that Nokia can leapfrog one handset generation and be on par with the competition in early 2012," said WestLB analyst Thomas Langer.

In February, Elop had compared Nokia with a burning platform in a widely leaked memo when he unveiled a shift in strategy in smartphones by choosing Microsoft's unproven software over its own.

Elop said he had greater confidence in shipping the first Windows-based Nokia phones in the fourth quarter. Some analysts and investors, however, are worried a comeback could be difficult.

"The market share has kept sliding and that's never a good sign," said Hakim Kriout, portfolio manager at Grigsby & Associates in New York, who dumped Nokia shares earlier this year. "They were in a leadership position for a long time and once you lose that position, chances are you'll never regain it."

However, Kriout also said Nokia's business may not be as bad as the latest sell-off suggests. "Traders are looking for a bottom. If you look at the shares now, and if you think it goes back to 8, then that's a pretty good return. It's really about when we're going to see things stabilize."

Tuesday's warning comes a month after Nokia said it would cut 7,000 jobs and outsource its Symbian software development unit to cut costs.

Elop is the first non-Finn to run the company, which evolved from a rubber boots-to-TVs conglomerate into a global mobile phone maker in the 1990s.

(Additional reporting by Jussi Rosendahl in Helsinki; Niklas Pollard and Patrick Lannin in Stockholm; Editing by Andrew Callus and David Holmes)

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Comments (6)
RandomName2nd wrote:
How the Nokia board allowed a Microsoft shill to destroy the company from the inside is beyond bizarre.
To discard billions of dollars worth of R&D in Symbian and MeeGo (of which they had full ownership of – and which was looking extremely promising with Qt) in favor of becoming yet another licensee of a the totally unproven Windows 7 Mobile OS makes sense only for Microsoft.
Goodbye Nokia.

May 31, 2011 4:17pm EDT  --  Report as abuse
Ananke wrote:
I don’t understand why Nokia did that. They should have used Android for Symbian replacement, and keep developing MS WM in the meantime, if they were so MS inclined. Nokia has wonderful hardware, but being 6 months with NO market is tough. I would say they have less than 50% chance of survival and zero chance of market recovery. Even if they come with perfect AND extremely cheap devices they will be too late to a fast moving market.

May 31, 2011 5:51pm EDT  --  Report as abuse
mmncs wrote:
I don’t understand why people are so surprised with the sales decline, since that is very obvious when changing technology. When Nokia announced their alliance with Microsoft I saw it as very smart move. I guess I’m one of the only ones, but I am also a developer. The lack of channels and usability has been the biggest problem for Nokia and the alliance cures this, since Microsoft have some of the best developer tools, biggest user base and now they have Skype as well. An acquisition which I think is not as stupid as many have stated, but lets see.

Nokia is one of the best at mobile and network technology and still not to forget has the largest mobile user base. And I really don’t understand why people are so dissatisfied with Steven Elop, since he is doing everything which is needed. Cutting expensive, making a quick shift, fast in executing, targeting the developer community and is very aware of the competition he is up against.

And as I said Nokia technology is good they have the patents to prove it. Moreover as a former Symbian C++ developer I know this technology is good. Very fast, the architecture is very well designed and has a low energy use. The problem has always been the developer tools, the multiple platforms and the distribution channels. I remember trying to get Symbian development to work under Microsoft Visual Studio and with no luck, shifting to Borland which is not my favorite. It was just a drag. I think most developers will agree.

Now it’s going to be one platform where there is one of the largest developer bases in the world. I would reckon just a bit larger than iPhone developers. That was with sarcasm for those of you who don’t know anything about this, there is lots more and I would reckon this is largest developer base in the world. Moreover this base is ready to easily push application on a platform where the usability and the channels have been radically improved. Just look at the numbers of applications in the last period of time. Not to forget that this platform actually has gotten a warm welcome from end-users taken into account the competition.

The problem with this kind of stock is that people don’t anything about these things, which means that it will probably continue to decline and then there the few who are going to make a huge profit. Maybe Microsoft?

Microsoft in general not doing so bad. Moreover have they made mobile the primary key concern and they have the money to do it, lots of it. Not to forget, how they did concerning Internet Explorer not so many years ago, do you remember?

Google is cool but I must also admit that I am not that impressed with Android. They are already facing the same problems as with Java Microedition – J2ME. With different platforms, functionality, different user interfaces, etc. This is crap work for developers and ends up making software for the lowest denominator. It is not fun now and this is only going to get worse.

I am impressed with Apple wow! I love my iPhone and had to have it even though I am not an Apple fanboy. Fantastic phone, but they have done their share and it’s only to copy now. Moreover when people in the future realizes how closed and tightly coupled they are to this platform when new technologies arise they are going to be surprised and I don’t think it is going in Apples favor. Look at the history it just repeats.

Well let’s see, this is very interesting. I’m quite sure that we are going to see some long faces once again.

Believe me I don’t think Nokia will be as big as before but to announce that they are done I would believe is very wrong. And Ananke how fast is the market? what has really happened the last year Apple, adding facetime? Sorry mate, but it is not revolutionary what has happened the last few years, only the iPhone when it first arrived.

May 31, 2011 6:11pm EDT  --  Report as abuse
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